There is more to report – and speculate – after yesterday’s mega-merger announcement that Home Bancshares of Conway will acquire Liberty Bancshares of Jonesboro in a $280 million stock-and-cash deal.

The transaction between publicly-traded Home Bancshares, parent company of Centennial Bank, and privately-held Liberty Bank is the largest in-state banking transaction in the history of Arkansas.

It boosts Home Bancshares to a financial institution with:

$7.1 billion in assets

$5.6 billion deposits

$4.5 billion in loans

151 banking locations in Arkansas, Alabama and Florida

92 banking location just in Arkansas

Roughly 1,500 employees

JOHNNY AND WALLACE
Beyond the business transaction, there is a nearly five decades relationship between the leaders of the two banks, Home Bancshares Johnny Allison and Liberty Bank’s Wallace Fowler. Allison told the story of the gentlemen meeting when they worked side-by-side at stores on Main Street in Jonesboro in the 1960’s.

Later, they served on the board of First Commercial Corp., once one of the largest banking interests in the state. When First Commercial sold to Regions Bank, Fowler and Allison scored big.

Both men are known for sniffing out good business deals and taking acquisitions for pennies on the dollar and turning them into fortunes. Word on the street is that neither Allison nor Fowler got a “steal” in the deal. Some have described it as “fair” to both sides, which is probably how the two friends would want to describe it.

Allison noted in the press conference for the announcement that the opportunity to merge the two banks came from a lesson he learned long ago from Holiday Inn founder Kemmons Wilson, whom Allison considers a mentor.

“One thing he said was, ‘Good judgment comes from experience and experience comes from bad judgment.’ So if you had your tail kicked in a bad deal, you’ll remember it forever. He also said, ‘Opportunity knocks often. It knocks as often as you have an ear trained to hear it, an eye trained to see it, a hand trained to grasp it, and a head trained to use it,'” Allison recalled.

Fowler said he and Allison had discussed deals for years and had respected each other’s territories by limiting overlap. But serious negotiations on the merger announced yesterday only heated up this year.

“I think Johnny had it on his mind all the time. I think that one call I made to him and said, ‘There’s not a better fit anywhere in the country that will service us both and take care of the customers at the same time.’ That’s probably what started it some two or three months ago,” said Fowler.

Allison said with as much stock as Fowler will own, he could do “pretty much anything he wants” at the bank. However, Fowler has different designs.

While he and his son, Mark, will fill two seats on the Home Bancshares board of directors, the older Fowler said he plans to “get out of the way.”

“I don’t plan on being in the bank. I plan on turning it over to my son, Mark, who is number two in the bank and John Freeman, who is our president,” he said. “We’re well taken care of, they’ve been running the bank and I just get in the way. I’m going to get out of the way and get in a motor home and travel with my wife.”

DUPLICATION
“I’ve done a lot of buying whether its chicken stores or banks, you’ve always got duplication it seems like. This one is almost flawless in that respect. As a matter of fact, when we started, they [Home Bancshares] did our data processing for us for a year or two,” Fowler also said on Tuesday.

“Seldom do you have two organizations that go together and don’t have duplication or problems with it,” he added. “It’s a perfect fit.”

There will be some areas of duplication, however. For starters, the two banks have small operations in Searcy and Morrilton. Allison said they would try to make those two towns work, but confided that some consolidation might have to occur.

The other areas of the two banks that are likely targets for consolidation to gain efficiencies are in back office operations. That would include divisions such as marketing, compliance, loan processing, IT, and data processing. Allison told investors on a conference call yesterday that he hoped to handle most of that through attrition.

UP NEXT?
The map of the two bank’s footprints highlights opportunity for more growth south of Little Rock. The only two branches south of the capital city are in Bryant and Fordyce. But there may not be many solid targets across south Arkansas.

“Who knows?” Allison said when asked. “It remains to be seen. What’s happening is so many of these community banks, they’ve been through a really tough time. They can’t pay a dividend, there’s no liquidity for the shareholders. They have no place to go and it’s sad because they are the cornerstone of a lot of those communities.”

“They’ve got the same regulations I’ve got, but now I’ve got $7 billion to spread it over where they’ve got $200 million,” Allison added. “I don’t know how they do it. It’s sad and there’s no buyers for those deals unless you can pick up some size and I hate it. I don’t know what they’re going to do.”

The Home Bancshares-Liberty combo puts the bank’s assets at $7.1 billion, and Allison said the $8 billion mark may be a tipping point for the next crossroads the company will face.

“I’m thinking $8 billion and we’ll decide what to do. Because Dodd-Frank hits you at $10 billion,” he said. “I don’t want to get close to that. If I get to $9 billion, they’ll treat me like I’m $10 billion. So I want to stay down below that, and if I want to move above it, I need to jump to $12 or $14 billion to get the leverage because it gets very, very expensive at that point of time.”

Industry observers suggest it may take 12-18 months for Home Bancshares to digest the Liberty acquisition, which means it is unlikely that the Conway-based banking group would bite off another deal in the near future. The $30 million cash part of the transaction will take a sizable bite out of Home Bancshares common equity and it appears there are no plans to raise additional capital at this time.

Organic growth in the Arkansas and Florida markets and optimizing profitability will be likely targets for the next year. Central and northwest Arkansas are the regions of the state with the most potential to gain market share although they are both highly competitive.

When it’s time for the next deal, Florida will surely have some attractive offerings. Allison has feasted on FDIC-assisted transactions in the Sunshine State pulling off seven deals since 2008.

Also, Arkadelphia-based Summit Bank, run by Ross Whipple, might be a good fit to stretch Home Bancshares into southwest Arkansas. The bank is large enough to make sense, but small enough to not push Allison’s bank over the $10 billion mark, and it has little overlap in existing Home Bancshares markets.

Other opportunities to grow could be smaller acquisitions to improve market share in central and northwest Arkansas as well as parts of Florida. As one banker said, “Investors like it when you add density of market share in existing markets.”

Today, those investors expressed their approval of the big bank merger. Home Bancshares stock (NASDAQ: HOMB) opened at $24.73 and saw a 10-11% uptick all day. The stock closed at $25.58, up 12% from yesterday’s close of $22.82.